Sunday, February 28, 2016

The Customer Retention Disconnect in B2B

Astute business leaders have long recognized the importance and value of building and sustaining strong, positive relationships with existing customers. Customer loyalty programs of various kinds have existed in the United States since the late 1700's.

Interest in customer loyalty grew in the 1990's when Don Peppers and Martha Rogers popularized the importance of understanding customer lifetime value in several highly-regarded books, beginning with The One to One Future. In 1996, Fred Reichheld fueled more interest when he demonstrated that creating loyal customers drives higher profits and shareholder value in The Loyalty Effect.

Over the past few years, customer experience has become one of the hottest topics in the marketing world, and numerous studies have shown that business and marketing leaders understand the strategic importance of providing outstanding experiences to both existing and potential customers.

But despite the long-standing recognition that customer loyalty is important and the current focus on providing great customer experiences, a 2015 study by Demand Metric showed that many B2B companies are still placing too little emphasis on customer retention and growth. This study also revealed that managing customer experiences is a fragmented process in most B2B companies, which may help explain why customer retention and growth receives too little attention.

The Demand Metric Study

Last November, Demand Metric published a report on customer lifecycle marketing that was based on a survey of business, marketing, and sales leaders, most of whom were affiliated with B2B companies. The Demand Metric research found that only a relatively small minority of B2B companies have fully implemented a customer lifecycle approach to marketing.

Only 19% of survey respondents said they are marketing to all stages of the customer lifecycle. Twenty-two percent of respondents said they are marketing to some stages of the lifecycle and plan to begin marketing to all stages, while another 23% said they are considering the adoption of customer lifecycle marketing.

Demand Metric also found that the average company spends about 60% of the marketing budget on new customer acquisition, but only about 30% on customer retention. Since it tends to cost more to acquire new customers than it does to keep existing ones, some disparity in spending is to be expected. However, 55% of survey respondents said that their marketing investment for the retention stage and for the advocacy stage of the customer lifecycle was minimal or none, which indicates that marketing to those lifecycle stages is a low priority.

For this survey, Demand Metric divided the customer lifecycle into five stages - awareness, consideration, purchase, retention, and advocacy - and asked survey participants to identify which of their departments has primary responsibility for managing each stage of the lifecycle. The survey results clearly show that multiple departments share responsibility for managing engagement over a customer's entire lifecycle.

An overwhelming majority of respondents agreed that marketing is primarily responsible for the awareness stage, and that sales is primarily responsible for the purchase stage. Fifty-nine percent of respondents said that marketing is also primarily responsible for the advocacy stage, and 50% gave primary responsibility to marketing for the consideration stage.

However, respondents were almost evenly split when it came to the retention stage of the customer lifecycle. Twenty-nine percent said it belonged to customer support, 26% said marketing, and 26% said sales. This finding suggests that the responsibility for customer retention may not be clearly defined in many companies, which could explain the low level of spending on customer retention marketing.

In B2B companies with "subscription" business models, the economic value of a customer is realized in installments, and customer profitability depends largely on the length of the customer relationship. In these companies, retaining customers is absolutely vital for success. In several other types of B2B companies, most customers make multiple, independent, and relatively small purchases over time. Maintaining strong relationships with existing customers is just as important for these types of companies as it is for subscription-based businesses.

The bottom line is that most B2B companies should be paying  much more attention to strengthening relationships with their existing customers.

Image courtesy of Dave_S. via Flickr CC.

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